Video - Andreas M. Antonopoulos - L.A. Bitcoin Meetup - April 2014

Andreas M. Antonopoulos, Chief Security Officer of Blockchain.info and popular Bitcoin evangelist, speaks to the Los Angeles Bitcoin Meetup Group about money and the evolving concept of currencies worldwide, deflation, trust and distributed systems. Andreas fields questions from the audience regarding sidechains, multisignature contracts and more.

TRANSCRIPT

Male: All right. Let's have the introductions. Except for one more, of course, the man needs no introduction in this space but I'll give him a short one anyway. So, he is a Bitcoin developer, commentator. He’s actually out in L.A * 0:00:16 tomorrow. So, he came out to LA before. It was such a success that they brought him back to do a second round, and he graciously volunteered to come and talk to us. He speaks around the world about Bitcoin at conferences, and you know, he's just here to support us. So, we really welcome him. He’s also the Chief Security Officer of Blockchain.info as a side note. But without further ado, Andreas Antonopoulos.

Andreas: So, I got here a bit late because of the hellish LA traffic. So, how many people have got Bitcoin in this room? Okay. And how many people do not have Bitcoin yet? And how many people have not really heard much about Bitcoin and are new to this? Okay, great. Well, this is going to be -- this is an audience that’s mostly friendly, so I'm going to preach to the choir.

For those of you who have not heard much about Bitcoin, Bitcoin is a digital currency but it's so much more. It's also a platform for doing a lot of very interesting things, like for example, voting or lotteries or stock exchange or bond issuance. And a lot of people in this room are really excited about this because it's the first peer-to-peer currency.

I don't really have a prepared topic today. So, I'm going to talk a bit about some of the things that I've been thinking about and talking about at conferences in the last month and a half. Things to do with the world of currencies and how it's changing, and so what things are happening in currencies. I've been working in the security and distributed systems for just about 20, 24 years now, and I was there during the birth of the internet, if you like, or the consumer internet in 1989 when I first joined.

Now, I wasn't one of pioneers of the internet. I was a 16-year-old kid standing right behind them, looking over their shoulder, like, oh, this is really cool. And so now, I feel very much the same about Bitcoin. I'm a bit older now so I can absolutely play a role with it, but it's something that really excites me because what I see is the -- what the internet did for communications, Bitcoin is now doing for currencies. It’s taking the power from centralized organisations and pushing it out to empower individuals.

And it's also creating a very decentralized network that allows people to innovate without permission. And it's also connecting a lot of things that used to be separate networks and bringing them into one network. And I'll talk a bit about these analogies and what they mean. So before the internet, there was a phone network and it was the public network, and there was a financial services and transactions network. There was the telegraph and there was TV and there was cable TV and stuff like TV and all these different networks. Some of them data, some of them analogue, and they all serve different purposes, and they were all closed networks, which means that in order to connect to them you have to get permission.

That's how finance works today. There is a network for international wire transfers. It’s called SWIFT. There’s a network for doing commodity exchanges. There’s a network for doing payments, it's called Visa. There’s another network for doing payments, it's called MasterCard. There’s another network for doing payments etcetera, etcetera. And all of these things are very separate. Some of these networks support only very large payments, in millions of dollars. Others support only very small payments. Just like in the past you had data networks, like, for example, X25. They’re more suitable for very, very small perceived traffic. And they had high capacity networks, like, *00:05:03 switch networks that could do very, very high bandwidth but couldn't do point to point.

And the internet brought all of that together and it created one network that can do everything. And that one network that can do everything changed the world because one of the things that happens when you have networks that can do everything and actually does all that is that people can transform it into new things that they haven’t imagined before. The reason the internet works is because it's completely neutral, and also because it's completely dumb. The internet is the dumbest network of them all. It’s far dumber than the networks it replaced.

ISDN, very sophisticated, whole books of specifications on how it used to work. X25 very sophisticated. Internet dumb, dumb as rocks. It could basically transmit packet from A to B very slowly at very low quality. And it didn't make any decisions about what those packets contained. It didn't care. It didn't care whether what you were transmitting was a financial transaction or *00:06:30 fax message or email or any of those things. All it did was move data from one place to another. It’s a very inefficient way seemingly. But what it did is it decentralized the power of networking and that made all the difference.

So, here comes Bitcoin, and we're hearing many of the same things that we heard in the early days of internet. You see, when the internet was growing up in the 90s, the telecom companies told us that you could never do voice on the internet because packet switch networks are really not suitable for voice. And they told us you could most certainly not do video because that requires quality of service that every point and every node that requires highly engineered, structured hierarchal network, otherwise you can't possibly do it. And they also told us that it would fall apart very often because it doesn't have really big specialized companies to look after it, take care of it, charge you $12 a minute in long distance for doing all of that.

And they were wrong. And the reason they were wrong is because a few simple rules applied at scale in a decentralized fashion can create a margin of complexity. And they can create a wealth of different capabilities within the network, and eventually you solve those scaling problems and you solve the quality of service problems and the networks keeps growing because it can do everything, and because the people who connect to it don't have to ask permission to innovate they can write an application and launch it and make it available for the whole world, and compete on an equal footing with everybody else who’s on the network, because the network doesn’t discriminate.

Bitcoin is too slow. Bitcoin can’t possibly be a real currency. Bitcoin can’t do micro payments. Bitcoin can’t do mega payments. Bitcoin can’t do quality of service. Bitcoin will be eaten alive by fraud. We really, really need the banks to build specialized networks to protect us from of all these things. That sounds awfully familiar. It sounds awfully similar to the same things that telecom companies were saying in the beginning of the 90s and yet we did voice.

Today, more than 75% of long distance calls happen over Skype and what used to be a good path of the revenue model of companies like AT&T disappeared in a decade because not only could the internet do voice, and not only could the internet do voice at scale and at decent quality, pretty bad at first then slightly better, then eventually better than copper. Now, full stereo CD quality voice in some cases and getting better yet. You do all of those things for free. For free! Those things that billion dollar networks were needed for before, and now you could do those things for free. And that business is gone. This is no longer necessary.

And the internet wasn't designed to destroy the telecoms business. Of course not. It wasn’t designed to destroy the media companies. It wasn't designed to destroy the entertainment industry. It was designed to move packets from A to B. That’s it. Everything else came later. Now we have a currency that is designed to move value from A to B. That’s it. Everything else is coming. Now, we're building the next Google, the next Yahoo, the next billion dollar industry. Or more importantly, the next application we never imagined, the next system for enabling remittances to bring some relief to billions of people who depend on relatives who are all sending money each week and who currently pay exorbitant fees to companies like Western Union and others.

We're going to build all of these applications because now we can build *00:11:02. Have you ever wondered why no one built a bank out of their garage or a payment network out of their garage or a new financial instrument out of their garage? The reason is because previously in order to build something that connects the payment network or to financial services industry, you needed to ask permission and the answer was always no. Well, there’s a bit more nuanced than that. It wasn’t exactly no. It was what, yes, but you'll have to protect consumers and that means paying a lot of money to comply with regulators, which conveniently happens to be a lot of money the banks are really paying and are very comfortable paying because *00:11:48 small will come out of that field and eat their business because it costs 20 to 30 million dollars to get a money transmittal’s license in 45 states or 48 states.

Regulation which is now being proposed for Bitcoin hasn't been about consumers for a very long time. It’s been a very convenient tool to stop any form of competition to the banking industry. If regulation worked, then after 2008 thousands of bankers should have gone to jail. We all know that. Everyone in the industry knows that. Everyone in this country knows it. But when you say things like that, you are a radical. You're radical. I am a radical when I say things, like, when millions of people lose their homes to mortgage fraud, someone should have gone to jail. I’m a radical because when banks can essentially control funds coming out of the Fed and get zero percent interest loans, but don't be late for a day on your credit card payment because we're going to ramp up your rates to 35% and send you right back into poverty and then you’ll go to jail.

When we found out after 2008 that the gold markets *00:13:12, no one went to jail. When we found out that LIBOR international banking overnight rate system that controls the interest rate of every loan in the world, that market was * 0:13:22, no one has gone to jail. In fact if I remember, the only people who went to jail were hedge fund managers who stole from rich people. You can't do that. Bernie stole from a lot of people. He should have defrauded a couple of million homeowners instead. They are poor and they can't fight back. So, this industry is ripe for disruption.

And I think it's a really corrupt industry. I know because I worked in it. I worked doing data centers and high-speed networks and I've learned how these things work. I learned that there’s a solution of a free market on the frontend. But behind the scenes, it matters when we have one foot of extra fiber between you and the order engine at 60 *00:14:17 rather, or one of the other data centers that connects the Euro Stock Exchange or to some of the other exchanges. Because if you can front run a trade by micro seconds, they just skim off pennies of every dollar that goes through the exchange. This is a bit like competing in the Paralympics only you are able bodied. It’s like competing against *00:14:52 sharp shooters and you can open your eyes. That's how Wall Street plays this game. They ensure that it’s rigged from the very beginning and no one else has a chance.

So now, they’re about to discover innovation at scale on a global level with internet scale currency, and that's what’s happening. But that's only was surface because this goes a lot deeper. We're changing the very nature of currency and corporations. And that has a ripple effect because currency is a tool of power. I used to think that there would be a few Altcoins, and overtime I've come to realize that in fact we're going to have a lot more than I've got. So all of you who knows Bitcoin, but you're probably heard of a few others, Litecoin, Dogecoin, Peercoin, Primecoin, *00:15:47. Lots of other little coins.

We're now at 200 coins and counting. So, who thinks we're going have hundreds of coins by next year? Right. How about thousands? How about tens of thousands? How about hundreds of thousands? How about millions? Yeah.

### * 0:16:30

So, I used to say we’d have thousands but I can't really say why you would have more because after all you can't really have monetary value for all of these currencies, and therefore why would people create them. Go to a primary school and watch what happens when you have young humans in an environment where currency doesn't exist. They invent currency. They started trading rubber bands, Pokémon, baseball cards, *00:16:56 bracelets, bubble gum, anything, everything becomes tradable. It’s a bit like really, all these types of cigarettes Joey and Maria are competing over control over the color of rubber band market. This is true, you'll see it. Children create currencies. Why? Because they see it as a form of expression because it allows them to express and relate popularity, because it allows them to socialize.

And so, at some point in December, I saw a site called CoinGen Ohio. And CoinGen Ohio is a site that allows you to go to *00:17:44 and create a currency. You don’t need to know anything about Bitcoin D or C++ or blockchain or proof of work or SHA256 or elliptic curve sect, 256K block, none of that. What you do is you go and give it an name, bummer for you. Great. Yeah, but you have a little *00:18:07 balances. How many do you want to exist? How often do you want them to be issued? What algorithm do you want to be issued by? Right, fill that all in, pay attention to Bitcoin, 50 bucks, hit submit, 10 minutes later you got an executable. You ran that executable as far as mining your coin, then you create a currency.

Now that can be done this year for point one Bitcoin. It will be free by the end of the year because I mean, there will be charges for the novelty, so like, a custom *00:18:42. So, there are going to be trounced and eventually you're going to have a *00:18:46 currency market where anyone can go in and rate the currency for free in five minutes without knowing anything about currency. So fast forward a couple of years and I'm thinking this is the environment in private school. Joey has now left the rubber band business because he got trounced by Maria because he launched a cryptocurrency for Maria coin pre-mined, that’s a bit of a problem. But Joey plans to give all of his friends mining gear so that they can mine with smart move.

And there's a competition between these currencies and they’re going to get traded, why not. At the same time, there's a boy band out of Canada and they were launching *00:19:41 coin or whatever coin right. And maybe a couple of corporations are trying to fundraise and they launch a coin. And then you've got branding coins and reputation coins. Maybe I'm going to launch Andreas coin *00:19:57. I’m going to pre-mine it heavily because the point being that currency is not just a means of transaction and it’s not just a means of storage value.

At its very basic level, currency is the way we express value. And so, if you look at it from that perspective, currencies are language. We speak value to each other by exchanging green pieces of cotton, *00:20:26 drugs and cocaine. And it's true that expression we say what you have to give me, product or service has value to me. And I’m going to tell you that in the language of US dollars. It’s the language. It’s an inherent part of social activity. Currency happens because trade happens, and trade happens because we're social being.

And so within the social environment, currency will be merged even if you don't know anything about it. For people then currency started with barter points, but it goes much further back than that. In fact, we're finding more and more examples or currency in archeological things, and anthropologists and economists are beginning to realize that currency is probably one of the most ancient technologies of our culture, of our civilization. Homo Sapiens have been doing currency for millennia, possibly for hundreds of thousands of years, approximately for billions of years.

I wouldn't be surprised if we find out one day that the first wheel was sold for carts because currency as we've dated it, it could be as old as fire, shells, stylistics, coconuts, beans, nuts, giant *00:22:04. Papua New Guinea have it, other islands, Polynesian Islands, feathers, all of these things have been currency at times. The characteristic of currency is pretty simple. You need something that is where. So, it’s not rare. It’s abundant and has zero value, right? You need something that's difficult to fake because as soon as it has value, people tried to fake it. It needs something that’s easy to transport, has a high density of value.

So, for example if I want to go and buy a goat I don't have to carry the weight 10 goats in currency to the market because then I just carry another goat, divide the goat with, right. It needs to be abstract. Most of the currency doesn't have a reuses because then its value is determined only by how it relates to other things. It’s an abstraction, right? If the currency is used, you use chocolates for currency try * 00:23:07 you will have a serious relation issue. Units of currency will be consumed and not traded. That will be *00:23:23.

So, some of the best currency is currency you can use any other way, currency that is purely abstract. In San Francisco, I think it was about 50 years ago, there was a guy called Norton and he had *00:23:48 business. He -- I think it was actually more than 50 years ago, during the *00:23:53. He was one of the people who built quick access instead of pulled by it, a smart decision, right, sold quick excess, made a lot of money that lasted *00:24:05. And then with his last money, he went to the store and he bought a uniform, a general's uniform *00:24:20 sash, the whole thing. He bought shoulder pads, you know. This was in San Francisco, might have been the beginning of the *00:24:30 era or not, but certainly very flamboyant.

And so, he then went out and walked the streets and declared himself emperor *00:24:41 San Francisco and he said, I am the emperor. He fired Congress. He fired *00:24:50. He made treaties with the Queen of England and a few others -- he wrote letters to them. And then something interesting happened. Emperor Norton launched a currency, and he managed to persuade a store in San Francisco to take that currency and gradually the idea spread, and more and more people started using Emperor Norton’s money.

And then something interesting happened. People started counterfeiting Jim Norton money, which is really fascinating because you don't counterfeit something useless. You don’t counterfeit something that has no value. So in a way, counterfeiting is the ultimate flattery for currency. It’s like currency has arrived when people started counterfeiting it, right? Because there's a voice, there's a reasons. You need to counterfeit it because you want to use it and therefore it’s useful.

And by that time, Emperor Norton’s money was pretty widespread. *00:25:54 counterfeiting on many other things that collapsed *00:25:58 in San Francisco you could go about and buy things with Emperor Norton’s money. But what would happen if Emperor Norton has a digital currency that could not be counterfeited? What started as a fact gradually sometimes through rigid rule of law became widespread, went viral, adoption happens. So as adoption happens, the value of that currency as a means to exchange started growing until it became a real currency, at least to the people of San Francisco, this was a very real cards and people started buying things with it, big things.

And so, it crossed over. It crossed over *00:26:47, from fad, from ridiculed idea to units of monetary exchange with full standing next to the national currency. We're going to see a lot more of that because now the line between monetary value and fad is getting greyer. So now, we combine these two ideas. Imagine a world where *00:27:13 can create currency as a means of expressions, every band, every brand, every reputation metric, every corporation, every nation states, random individuals, developers *00:27:25 they can do better, making slight tweaks throughout the currencies, and suddenly you realize we will have tens of thousands of currencies and probably hundreds of thousands of currencies and maybe even millions of currencies.

And most of them will be worthless and it doesn’t matter. *00:27:46 will achieve the most important goal of currency which is, they will become a means of expressions, a language by which Joe can communicate *00:27:54 with his friends. And to Julie, this currency is valuable, whether you're think it is or not, and perhaps to some of the friends it’s valuable. So, what does it mean for currency to be valuable? What gives the currency value? What makes money work? Well, up to 2008, the answer was simple, sovereignty. The sovereign power of a nations state, king, emperor, ruler or whatever, creates currency and then enforces that currency through a monopoly, by forcing people to use it either by saying you can only pay taxes in this currency, or in more aggressive states you can't choose any other currency except this one. And in very aggressive states, if you are caught for *00:28:49.

But through all of these, there’s an implied monopoly of force which is applied by sovereign. After 2008, currency could be created by individuals, and it has no monetary value until it's adopted. But once it's adopted, it can actually become powerful. Now the question is, how powerful can it get, and that's where I think things start getting interesting because I think we haven’t realized yet the answer to that, because a currency that has user adoption on a global scale suddenly becomes bigger than any national currency because it transcends all orders.

People often asked me, which countries are going to adopt Bitcoin first, what do you think? And that's a bit like asking which phone company is going to go internet first, it doesn’t matter. It really, really doesn’t matter. The simple answer is this, the world's most populous economy and the world's largest economy in terms of volume of transactions and value is already adopting Bitcoin. And that is not a country, it's the internet. It’s community based around a mean and a common communications network. If the internet adopts Bitcoin, countries don't matter anymore, not who adopts Bitcoin doesn't matter, countries themselves started fading.

And the reason for that is because now the power of currency on a global scale starts reversing the very essence of currency. And this is the idea after 2008 sovereignty creates currency, after 2008 currency broadly adopted creates its own sovereignty. It creates its own purchasing power. It creates its own financial empire and then the choices of the users using that currency start affecting the world around them. It's a reality distortion view.

So imagine a world in which Bitcoin is adopted broadly among thousands of other currencies. And now people have a choice for the first time in history whether they use their own currency, their national currency, the one they were born into *00:31:14 or whether they use the currency *00:31:17 that require the currency that’s accepted every place, the currency that can be transmitted every instantly, cheaply, securely. And if more and more people start making that choice, again it’s over because obviously it's a better -- it's a better currency. And you might argue that point. It might be something else but the world of sovereign currencies ended in 2008. The only issue is no one noticed yet.

So, fast forward 21st, and I imagine a student that belongs to economics, his first year, studying currency and as one of the entry level courses, Currency 101, this student’s professor has given him a task to write about pre-blockchain currencies. It’s bit like writing about *00:32:19 with PowerPoints creating constitutions in 1776. It’s an alien world we don't really understand. As a student you have to do it. You're trying to understand what the purpose of this exercise is but your professors believe that this will give you some insight into the current state of the world, by giving you something to compare.

So, he's trying to find a paper or she’s trying to find a paper about pre-blockchain currencies. And this specific topic, if that's the way they always *00:32:56 specific topics for the paper is the 2008 one percent attack on the US dollar led by the proof of state system that collapsed global currencies. And so, this student is trying to understand. And if you put yourself in the head of that student, it is impossible to fathom why a country of 300 million individuals running a hundred plus trillion dollar total economic output would put the power of monetary policy in twelve dudes’ hands at the Federal Reserve. It is impossible to fathom because anyone who understands the very basis of history knows that power corrupts, and absolutely power corrupts absolutely, and power in the form of money corrupts faster than any other power. And absolute power over the form of money is the most corrupting influence of them all.

And therefore, you do not put that power in the hands of 12 people because those 12 people control the fate of 300 million by deciding whether their savings, their retirements, their college funds, their children's future will still be there 10 years from now, or whether it will be a pile of paper or cotton in this case, not worth the cotton it's printed on. It’s hard to fathom from our respective *00:34:43 countries what happens when a currency implodes from hyperinflation. But historically, every currency in the history of mankind eventually does exactly that.

And the reason is really simple. We hear about how scary deflation is. Who's scared of deflation? Deflation is scary because -- why is deflation scary? I bought a laptop this year that had more power than all the super computers on the planet that *00:35:28 for less than a thousand dollars, that's deflation. That's price deflation, very real price deflation. That is exactly what happens when you have growth, development and innovation pushing prices down. Now what if you owe someone a thousand dollars, and that $1,000 starts increasing in value and a year from now it’s worth $10,000? That kind of sucks right? But if you have a $1,000 in the bank and a year from now that’s worth $10,000 equivalent, then that's kind of nice.

So who owns most of the money? And more importantly who owes most of the money. You see, the problem is if you are a government, your entire monetary system is based on that. And so, if you owe trillions of dollars then deflation absolutely really sucked. In fact, what you really want to do is safe that junk pile of money and turn it into nothing, which will destroy the future of every city in your country, but who cares. They're not sure whether it's in the corporations that buy, the *00:36:52 is set by you, and you'll just get re-elected. So in that environment, deflation hurts those who owe and it helps those who save. And so, of course, governments hate deflation. They owe all the money and individuals, especially in countries that save a lot, actually enjoyed deflation.

There's another reason behind this weird situation, which is that we've only ever seen deflation during a catastrophic collapse of event. Let me tell you what I mean by that. Let’s say you were in 20 years ago, and the interest rate has gone down to zero. So you can't take it any lower, and you can purchase as much money as you can, as much money as you want as long as *00:37:48. And so, the printing presses start printing like crazy, and money is flowing out of central bank, but nobody wants it because everyone knows that the economy is dead. So, you have a resulting catastrophic collapse of events. People stop buying stuff because they're broke because they have no *00:38:18. When people stops buying stuff that has a ripple effect throughout the economy. That's not the same deflation that gets me a laptop really cheap year after year. That's deflation where they have to drop the prices of apples year after year because no one is buying apples, a whole of different style of depression right or deflation.

And so in a world where currencies are based on that and currencies were issued by central banks that can print unlimited amounts of currency, deflation is a bad thing because it only happens when you have catastrophic collapse in demand and that bankrupts governments. But in a world where you have currencies that are based on assets, than Bitcoin is not a debt-based currency. It’s an assets-based currency.

You cannot have that spiral of infinite printing that leads to collapse in demand. There, it’s more like the deflation of increasing purchase of power. It's not because I have stopped buying anything that dropped the prices. It’s because I am getting effectively wealthier because I now have more purchasing power. Then that's a very different model. It’s actually a model that existed with gold. But the problem with gold is you can't sell or buy it.

So, here's the thing. We don't really know what's going to happen with Bitcoin with the deflation of economy, but what we do know is that something new has happened. We now live in a world where currencies can be created by individuals with no effort in very little time. And because people create currencies to express language, they will. So, *00:40:05 for example, imagine a decade from now and you're in a remote part of Australia and the two dominant forms of currency are doge or the Australian dollar. And the Australian money has a picture of the queen on it, and doge has a picture of a dog *00:40:33. Here's the thing, because the people who used this do not care. And the reason they do not care is because if they can buy six eggs with the money that has a picture of the queen of it and they can buy six eggs with the money that has picture of the dogs on it, that money has value, same value, the same purchasing power.

In fact, for the vast majority of history, the people using the money with the old white baby on it have no idea who this old white baby was. They now have no idea what the hell this dog is, why it's in the money and what's wrong with its eyes. It looks really weird and funny. And the point here being that if you have a currency that starts with a fad then it crosses that magical moments of adoption where if it becomes widespread enough to have real impact purchasing power, then it doesn't matter. It becomes currency. Currency is a state of acceptance. Currencies are not created into that state of acceptance unless you have a monopoly.

Now, currencies can be created without its monetary value, and then emerge into monetary value as they crossed a magical critical mass of user adoption. The interesting thing is that user adoption doesn't have to be universal, it is entirely hyper local. So, the question for that person living in a remote part of the rural Australia is, will Paul take doge for eggs. Not, will some banker across the world take Doge for something. It’s really hyper local, and as long as that works, then that currency has value.

So, we arrive in a point where the fundamental difference between the currencies has disappeared. The influence doesn't matter. The currency with a dog or the currency with an old white lady pretty much works the same. And guess what, you know what, the biggest difference between the two is? One of them has a fixed monetary policy with predictable issuance, deterministic and predictable issuance, a monetary policy based on an algorithmic curve that cannot be modified. One has removed uncertainty and risk of future monetary policy by putting itself on a *00:43:09 and saying this is show it will be through the power of consensus, and the other one has an old white lady on it.

And I don't think most people have realized that this is a fundamental change in the way society operates the currency because now, we can take the fad and take it all the way to global currency because it has the mechanics of global currency from day one. Portable, high density value, transportable, unforgeable, predictable issuance, and you put those five things together and it means nothing if you're making Joe coin because you know it doesn't really matter what monetary policy is in a primary school, but if that coin goes from there to achieve a global success or even a local success among a few million people, there are seven-and-a-half billion people out there.

So now, let's ask this question again, how many currencies will there be in 1 years? And that question is entirely meaningless because it is exactly the same as asking a decade ago how many bloggers will there be, how many publishers will there be and the answer is all of us. We will all create currencies at some point *00:44:31. So, to wrap this up and go back to this analogy, this creates a very difficult situation. Most people cannot imagine a world in which their currency is not determined by a guaranteed system of institutions and regulations at all authorities and high priests money who have meetings and publish minutes in PowerPoint followed by believer.

I was in a room during one of these meetings when I was in a hedge fund trading forum *00:45:07 trading forum so then watching the Federal Reserve I think it was Greenspan at the time. And they have the -- they have the press this, for the public speech that Greenspan is about to give. They had a dozen experts in the room and their job was to figure out what the policy would be before Greenspan said the first word, right? That was their job, paying hundreds of thousands of dollars to these experts to watch Greenspan and work out *00:45:50 and go. And by that point, they have to already make the decision.

So, you have people in the room going, okay, and the experts right. So, he was looking kind of funny. He wasn't smiling enough, may be a bit gruff, I don't know. I’m not very optimistic on the future of the currency oh god, sell, sell, sell, sell, sell, sell, right. And this was before Greenspan said good afternoon. And by that point, they were already three seconds into a high frequency trading billions of dollars based entirely on the slight twitch of the left eyebrow. This is how monetary policy works in our world and it’s fucking insane and that's how it works.

Yeah, people are not ready to give that up. People are not ready to understand the idea that you can strip away all the bullshit. And the idea, the fundamental idea is well, if that's not the person who's in charge, who at least I can watch on TV and look for the twitch of the eyebrow, who the hell was in charge? And that's a natural question to ask when your entire life, your entire culture, your entire civilization has been based on centralized decision making on consensus systems. Centralized systems that depends on authority, centralized systems that require you to understand the motives of those authorities that require you to understand the interests and motivations and incentives and mindset of these authorities because they control right, they pull the levers of power or whether it's the prime minister, the president, the Congress, the head of a cooperation, all of these hierarchical institutions have someone who exerts power. And therefore, our common understanding or authority is, why are they doing what they're doing and can I understand why they're going to do the next thing.

I don't think they know what they’re doing. Really, they don’t. People operate on a perfect information but if you're trying to understand the idea of the decentralized system, it seems insane. So, when you try to explain Bitcoin to people, the first question they asked you is, yeah, I understand no one's running it, but who's running it? Yes, I understand no one's in control but what if the guy who invented it decided to come in and steal all the money? It doesn't work like that. Is Satoshi a good person? It doesn’t matter, right? It’s a very difficult concept to understand because every other hierarchical system, every other system for decision making, every other system for consensus, every financial system in the world depends on understanding the very essence of that question. And when you have no one that *00:48:59, when there are no levers of power for anyone to pull, when you operate based on an algorithm, that concept is difficult for people to understand, very difficult. So, they always seek the center, where is it, where is Bitcoin, who is Bitcoin, who controls this.

I went to Bloomberg. The very first question from a journalist was, so yeah, but can someone just make as many as they want? No, it doesn’t really work. But how hackers will figure it out, then they will steal all the Bitcoin. Well, no it doesn’t really work that kind. So, I got news for you too. We have no idea who Euclid is. We don't know. Was Euclid 00:49:49 one scientist, mathematician, geometrician? Was this several working together under a pseudonym? Or was it just a mesh up of the work of three different people who ended up mistakenly in the history books being attributed to the same person? Most importantly, was Euclid a nice person? Or did they create Euclidean Geometry to fuck the future? Is there a hidden trapdoor? How do you know that two parallel lines never meet? Do you really?

Maybe the way Euclid *00:50:43 if you go far enough those two parallel lines would meet and then you're going to be in trouble. The point being, we have no idea. We have no idea. And it doesn't matter because we can use Euclidean Geometry to understand the movement of objects, to understand surfaces, to understand everything. And it doesn’t matter if Euclid was a nice person, three people, an alien from the future, the NSA. It doesn’t matter if Euclid was straight or gay. It doesn't matter if Euclid was insane. We can still use Euclidean Geometry. And the point is, it doesn’t matter who Satoshi is, it doesn’t matter. Elliptic curve works the same, SHA works the same. I can read the algorithm and I understand how it works. There will be 21 million coins, that's it. It's not going to show up the 21 as 37 and say you know what yeah, the 21 million coin thing, it's kind of a lame idea, so I just made a little change and now we're going to have 42, okay, we don't. No one has power over Bitcoin to do that, rather everyone has power over Bitcoin.

So, we live in a new world where authority is not derived from the author, funny thing that, the word authority itself has the word author right in it. We need to adjust to that world. We need to adjust to a world where who issues the currency and who controls the currency are two different things, and in fact no one controls currency. And understanding that concept *00:52:41 to mainstream people is going to be difficult because it contradicts, not just years of understanding of how things works. Currency is imbedded into our culture so deeply that by three, four years old, children start asking questions. And if you pay attention, they ask really good questions that most of us have no clue how to answer. What is money mommy? Why don't you have more money mommy? Why can't you make your own money mommy? And if you pay attention really, they're asking very smart questions because we can't answer most of those questions.

Most of us have no idea what money is. So, we depend on authority. Well, I’ve got good news. We’ve been through this before. You see, before the era of the internet, before internet publishing, opinion and authority of opinion was derived from the author. And in fact, it was derived from the size of the author’s printing press. And if you had a printing press that is four storeys tall and three football fields long, and a sign on the building says the New York Times, you have authority. And that authority is derived from the fact that you can buy ink by the barrel, print 600,000 copies, and put that idea in the heads of millions of people.

And so, before the internet publish era, we looked for authority based on the name that is on the top of that piece of paper and that created authority. And it created authority because through the natural monopoly over the issuance of opinion, we had institutions that carefully vented, filtered, editorially control that opinion, until out of all of the morass of knowledge and data, information was gradually distilled into this tiny little consumable morsel, the entire world in 10 pages, and those 10 pages telling the state of the world today. Okay, here's the problem. Sometimes Julie did not play truant and sometimes there were no WMD. Judith Miller was full of shit even though she told us there were WMD.

And sometimes, all of these organizations that are built to carefully distill that knowledge into *00:55:33 fail, and one day we woke up in this new world where anyone is publishing, we didn't know what to do with that because how do you know that this anonymous blogger has an opinion that matters, you actually have to read it and think, and that's hard. And then, you have to try and decide by reading more things and thinking which things are real, which are not and which things matter and which are not. And we now live in a world where an Egyptian blogger who writes about the things that they see with their own eyes a hundred yards away, they see the security forces beating people up, and they write about that to a worldwide audience instantly, that person has more authority than Judith Miller who was full of shit because they're right there, because we understand now the difference between authority and truth.

And so, we now live in a world where we have to make those decisions ourselves. Well, now we're doing the same for currency. Now, the currency does not depend on who issues it but it depends on who uses it. If lots of people like the currency and uses it, that currency acquires power, monetary value emerges, exchange value emerges, and that currency starts being useful for more and more people. It's a viral thing. It’s a mean, and if you follow that path, you’re right in the world where, as I said before, sovereignty no longer creates currency, currency creates sovereignty. And with that, I'll close and take some questions. Thank you.

Male: I have a question for you. And *00:57:41 but, I was having the same -- a very similar discussion about authority and the power *00:57:46 last night for dessert and, you know, it seem a lot of terrible things happen *00:57:53 governments abusing their control and power. So, I wanted to ask you, you talk about students looking at a history book 20 or 30 years, and when they looked at the history book and they discussed the topic of the switch from pre-blockchain to post-blockchain or what's the chapter on the world in a fight in that transitionary period? Who are the heroes? Who are the villains? How does that transition happen and what's the timelines?

Andreas: That -- that's a very good question. I think people asks the same type of overestimate and underestimates the fight. In some ways so far there is no fight. At least here and the places where there will be a fight, haven't been reached yet by these currencies. I think for example that in countries that have rule of law, due process however weak that maybe, and I think it’s pretty weak here, however weak that maybe, it's really hard to do a full frontal attack or something like currency. People react badly into that.

In the countries where there is no rule of law, you have the opposite phenomenon, where if the government says we’re betting that, like okay, *00:59:34 what's new? I didn't stop *00:59:41. I like *00:59:41. And so, the problem there is that the rule of law is weak, so it's the authority behind it. And so as a result, that fight doesn’t play out quite as expected. I used one analogy, for example, have you heard of the Russia *00:59:57 Bitcoin?

Female: Yes.

Andreas: Okay, they didn't create it. They actually told the banks not to put it on their *01:00:03 Bitcoin, no they didn't, yes they did, no, they didn't, trying to bet on Bitcoin, no they didn't, yes, they did, no, they didn't, they will, no they won't, yes they will. And this has been going on for a few months now. And guess what, it doesn't matter. Certainly, it doesn't matter for people of Russia and China. The dollar has been illegal or was illegal for 20 years, and guess who had all the dollars in Russia, the politburo, the more that they banned dollars, they started stuffing their own suitcases with dollars. So, what happens in totalitarian regimes like that is really simple. There are people who are above the law and there are people who are below the law. The people who are below the law know that there are people above the law. And so, therefore they don't really believe in law. They understand that it's all about people, really.

And so, the people who are above the law do the things that are illegal because they can. And the people who are below the law bribes the people who are above the law to let them do things that are illegal. So first, the politburo stuffs their suitcases with money. Then, the military stuffs their suitcases with money. Then the police force stuffs their suitcases with hard dollars. And then the people starts stuffing their cases with hard dollars and bribing the police to look the other way with dollars until eventually the rule is such that nobody use them anymore.

I'll give you an example. I went to Argentina in November where it is absolutely illegal to transact currencies without a license, absolutely illegal. In fact there was a currency crisis and the difference between the official rate for the Argentinian peso was about 5.5 per dollar, and the un official rate which was climbing about 12 black market rate, almost twice as much, right. And so, I walked out and *01:02:03 and on the first corner, there was a person who looked at me and *01:02:11 and make the correct deduction *01:02:15 I'm not rich. *01:02:19 to an Argentinian, rich, and he want change -- exchange dollars *01:02:28.

Well, clearly, I was in a very bad neighborhood, a den of thieves because here was illegal activity happening in broad daylight. Well, guess what happened at a block later, dollars, dollars, exchange dollars, dollars at a block later, and a block later, and a block later, and then I'm walking down the main thoroughfare, the commercial district, and I can't go a block without four or five different people offering to exchange my dollars for pesos at 12 pesos a dollar. So, the fight hasn't started here, and has started but is meaningless there.

There’s this quote that’s attributed to Gandhi but think it's *01:03:24 about many times, but I can find the humors which is, first they laugh at us , no first they ignore us, then they laugh at us then they fight us, then we win. And so, with Bitcoin we're currently at the laugh at us stage. We went through the ignore stage, the first four-and-a-half years. We’re at the laugh at us stage. I think at some point we're going to give them a fight, but here's how the fight plays out. And keep in the mind that the important to realize is, this already happened with the internet.

Now, it's like, oh, the internet is everywhere. It’s everything. We all use it, it's great, it's fantastic. We build billion dollar businesses on it. It was not like that at first. At first, the internet was a den of thieves, pornographers, terrorists and pedophiles and the telecom companies wants nothing to do with this weird technology that a bunch of *01:04:23 with ponytails and fedoras had built. And if we just let anybody *01:04:29 then the world would end and terrorists would take over and use it for communication and oh, my god, that all kinds of things would happen. And there was a really big fight against the internet.

When I was living in *01:04:41, the local phone company actually use software or some analog system to detect when you were trying to do model calls internationally and shut the connection down. They replaced services because they could charge exorbitant rates for long distance. And if you could get a high speed modem call and then multiplex 10 or 15 voice calls underneath, you could build a kind of *01:05:10 where you open a little shop in Athens, and you have people who could then use that and through an American provider, then do dial up from the States and dial anywhere in the world for like a tenth of what the Greek telecom charge.

So, what they do, they banned modem calls. They banned modem calls. And that worked exactly as much as Russia banning Bitcoin. It’s like putting a fence on a path -- *01:05:46 guarded path going through a park and there’s this fence that’s three feet wide blocking the concrete path and says park closed. It’s nothing to the internet *01:05:57. You can just go like this, walk pass it and then you can get back from the path and keep going. It’s just a three feet wide fence in the middle of the path that says park closed,. Okay. Could you *01:06:12 money, that's what that looks like in international settings. So, there is no fight and I think at some point, there will be a fight. I don't know how bad it will be. I'm sure that at some countries people would be killed for owning cryptocurrencies.

Male: I guess -- I guess my fear or my desperate mind but it's that, you know, if you’re one of those 12 most powerful people in the room, and you’re entire powers were -- your power depends on the ability of 12 person, and if you’re a government, and your entire power and structure is existential and dependant on your ability to issue debt and to be able to fund your government through the exiting financial system, and you have all along *01:06:59 all the control, then is this fight going to be a much greater fight than, say, the power of struggle over the internet or other?

Andreas: Yeah, obviously, probably. But it's going to be just a few time because this is not something that you can contain within one country, it’s global. And it's not something that you could stop because it's digital and it's fluent. Money is now a content type. Think about that a second. If you’re *01:07:31 money is the content type, a Bitcoin transaction is 300 bytes, 300 bytes. You can write *01:07:41. Even better, I can first transmit that on a shortwave radio. I imagine you're in an environment where Bitcoin is absolutely that. You’re finding a similar or a stereo or something like that, not now, a decade from now when you can actually fund yourself a wallet of Bitcoin.

And all of the data networks are being blocked for Bitcoin, where the only mean is someone with a shortwave receiver in an adjoining country that is willing to take a 300 byte first transmitted transaction and put it on the Bitcoin network. And now, you can do millions of dollars for transfers with a laptop on a software-based radio, and a rail line. So, you take a laptop, *01:08:32 where you got to the forest near the rail track. And then when no one's looking, you hook up the antenna to the rail track and use the entire rail tracks and antenna, you press enter and it goes vroom, and four seconds later, it's done. You turn it off and you run away. How the hell do you stop that? How could you stop someone from transmitting 300 bytes of information? I could include smileys.

There are 64 smileys on *01:09:04. That's a base 64 *01:09:06. I can include 300 bytes of a transaction and well, someone do the math for me, right? Maybe 60 smileys, 60 smileys. So, I can send 60 smileys and that's a Bitcoin transaction, as long as the recipient converts it back into a Bitcoin transaction and transmit it, that one’s for -- how the hell do you stop that, right? Do you remember during the hostage situation? I think it was -- I remember where it was city of *01:09:47 the situation. One of the GIs who is *01:09:53 during the *01:09:54 confession that they videotaped or something like that, I don't remember if it is that one but some American GI sitting there, and he’s saying I am a spy for the American *01:10:06 please forgive me. And he’s blinking Moore’s.

You could blink a Bitcoin transaction, right? Sounds really terrible anyway. The point that I'm saying is once you convert money into data, a content type, and the process of transacting is simply getting that 300 bytes content type to any connected node anywhere in the world and inject it to the Bitcoin network, there’s absolutely nothing you can do you stop people from transacting. You can only impose sanctions after the fact. Here's another important lesson, especially for officials and dictators, and that is that one month after you stop paying your troops, they stop shooting the people and they start shooting you. *01:10:59 learned that during a speech he delivered in front of two million people *01:11:02 Square. When he started talking, they started shouting to the dictator, the soldiers started shooting into the crowd, but they were too hungry and eventually they gave up and they turned around and started shooting at the generals.

And it’s the Soviet Union fact, that was the beginning, and it happened because they were starving and it happened because you can have all of the balls and of the guns and all of the things if you're a vicious dictator, but you don't have content to the governed, and you need to keep paying the soldiers so they can keep pulling the triggers. Now, if all of the people divest themselves from the national currency and suddenly you can buy eggs with a cryptocurrency that you can't buy with the national currency, then the soldiers wants cryptocurrency and then they stop shooting the people and they start shooting the dictator.

So, there's enormous power simply in the consensus mechanism because at its core, Bitcoin is *01:12:10 system. It depends on the content of the governed because it depends on the consensus of the user, and if you don't have that, if you don't have political legitimacy, then your lack of political legitimacy very quickly leads to a lack of value to currency because now the people have a choice. I think it's a very interesting development to see how it goes.

Male: Well said.

Andreas: So, *01:12:41 with files in them. But if this *01:12:48 and someone makes up I can *01:12:50 because I don't want to give people an opportunity to essentially *01:12:59 jail for no reason. And so, but here's my secondary plan for doing that in jail, what I'm going to do is replace cigarettes with cryptocurrency as the in-jail *01:13:16, that’s my plan, all right, and because you don't have computers to give proof of work, my idea is that you face it all on a pencil and paper proof of work system based sudoku, and in fact scientifically you can do that because Sudoku is an isometric algorithm. You can verify it very quickly but it takes a lot of effort to solve a large Sudoku and if you can see that with numbers with the previous.

Male: It actually scares me that you’ve thought about this.

Andreas: Well, the reason I thought about this is because you Sudoku is a good way to explain to people how proof of work algorithm works. Everybody understands Sudoku because you can, come on, I'll show you one, you can figure if it's correct or not. That it’s hard to do. That’s what isometric algorithm is. But then I started thinking about how do adapt that to a pencil and paper frigid based currencies *01:14:09.

Male: All right, questions, questions. *01:14:16 your name.

Female: Mrs. Sofia, thanks so much for being here.

Andreas: Thank you.

Female: Just a quick question on Mt. Gox. I think a lot this of this *01:14:23 security in commissions or perhaps *01:14:26 on the part of management? What is your overall thought because as you know the PR outcome is quite negative?

Andreas: So apparently when I said that Gox was grossly incompetent, I don’t criticize or supported Gox and leading more people to buy into Gox before it collapse because I didn't say outright a reproach. I had no evidence to say that. I said at least they are grossly incompetent. Hardly that is an endorsement, at least *01:14:59 that is a yes. That is silly for Gox. So, we won't know yet but the good news is that we will find out because there are *01:15:13 and they’re referencing evidence. So, here's the interesting thing. Gox will not get bailed out. Gox will not *01:15:23 because it’s all the public *01:15:25. Gox will not be restructured with a long guarantee from the government. Gox will not get zero percent loans.

All of us debasing our currency *01:15:35 by Gox will not get to whitewash their walls, acquire a few smaller companies and pretenders and sold them to our *01:15:43. Gox will not destroy the entire economic foundation of Bitcoin in order to pretend its still solvent, no, that's country wide.

Female: So *01:15:59?

Andreas: We will get answers because all of the evidence is on the blockchain and because there’s a lot of evidence. And I think the nice thing about computers is that you can *01:16:09. So, Bitcoin is the most transparent financial system we’ve ever had. And I think we will get answers because there will be a serious investigation because this is unlike all the other situations, a banker who is going to jail. Germany is already doing it but also Preet Bharara who is the U.S. attorney for the Southern District of New York, a complete hypocrite and career prosecutor who’s trying to prosecute Bitcoin because he failed to prosecute the real banks and is now prosecuting Gox.

Female: You have to do an investigation *01:16:47?

Andreas: I was invited at some point to explain transaction *01:16:52 ability and I declined, right, to go and talk to prosecutors who failed to prosecute banks and then go after Bitcoin, sorry.

Male: There's-- there's a mike out here *01:17:07 the mike and put it on. If you guys want to ask questions *01:17:14.

Male: Hi, my name is Jordan. I first of all want to say think thanks for taking the time *01:17:23. My question, the amount of the dollar was based on gold value back in the day and it was based on our 12 *01:17:36 most of the currency. What will the Bitcoin’s value be based on?

Andreas: Bitcoin’s value is based on the combined computation and the combined economic activity of all its users, and that's a pretty solid foundation. And I think it's getting more solid every day. It’s not entirely solid yet, and we could see a lot of incomes but it’s got a good start. I think it's -- to my point earlier, its adoption, to create value of currency, its economic activity, one thing that people are missing is that *01:18:24 that Bitcoin will replace the economic activity occurring in other currencies. Like, if you get Amazon to adopt Bitcoin, then almost the money that’s floating for amazon in the form of dollars will now float Bitcoin in the form of Bitcoin. That is exactly the same thing as saying in 1992, if we get AT&T to adopt internet, then all of the fax that’s floating AT&T’s network will now flow over the internet and we will win by having all the fax traffic. And that's missing the point because the internet didn't replace telephones. It rendered them irrelevant and it's not going to replace -- it didn't replace all of the vinyl. It rendered it irrelevant.

And so, what Bitcoin is doing now, which is very interesting is it's not replacing dollar economic activity because the dollar economy is stagnant unless you’re building frozen bonds and financing derivatives. What it’s doing is it’s generating economic activity. It’s generating its own economic activity through hundreds of vibrant start-ups. They’re actually innovating things that people *01:19:39 people’s lives. And we're doing a job fare *01:19:43 in May. We’re going to have hundreds of developers and thousands of companies looking for developers.

Now, for those of you who are a bit younger and maybe you have just entered the industry, a job fare is something that happened before 2008. That’s when companies have jobs and they invite people to compete for these jobs. Yeah, it's radical and we're doing that to Bitcoin. That is real. That's economic activity. Right now, there are hundreds of start-ups and we've only just started. So, stop thinking about Bitcoin as a form of payment system that replaces Visa so that we can do shopping faster online. That’s not what it's about.

Bitcoin is not about shopping in the developed world. Bitcoin is about everything else, everywhere else. And that's the key message here, which is that if you think about what the internet did, it didn't just replace the telephone network and then just become a bigger telephone network. It created whole new industries. It created whole new applications. It created whole new forms of living and interacting, *01:21:03 and expression, etcetera. And Bitcoin is creating whole new industries now, and those industries will eventually become more valuable until one day a Bitcoin company will *01:21:15 like Chase, JP Morgan & Chase that are fucking discount. And if you think that can't possibly happen, just remember who was buying who when AOL bought Time Warner, right? And no one thought that was possible in 1992 but it can happen.

Male: Thank you.

Andreas: Thank you.

Male: I actually have a question. Hi.

Andreas: Yeah.

Male: Yeah, hi, my name is John.

Andreas: Let's get a microphone to you.

Male: All right. Hi, my name is John. I'm just curious, you know, we're talking about this democratization of currency, and I think it's great. But my question is this, what is *01:21:55 of hoarding this wealth? There’s no diminish aspect to it. So, this could be decentralization of wealth *01:22:01 people, you know, some bankers that were not in Wall Street that’s securitized. So, the commodity, what’s to stop that from happening?

Andreas: Well, I think what’s to stop that from happening is the fact that *01:22:19 economics talk about this idea of hoarding, but you know *01:22:23 sell products, I now sells services for Bitcoin, and I now had a difficulty selling products for Bitcoin. All I need to do is discount it in order to include projected *01:22:40. I think is out of battery. I was discounting the products to include the projected value -- projected value of Bitcoin in the future. So, let's have *01:22:54 Bitcoin, right, *01:22:55 a product for Bitcoin right. If I think that Bitcoin is going to rise 20% in the next year, well, they can *01:23:04 sell it for point eight Bitcoin because then I can generate some of that value through appreciation. So, I’m going to drop the price. Meanwhile, a person that’s buying is going to see a significant discount by using that currency because deflationary effect is painted to the pricing.

If you think about it from a different perspective, when buyer and seller meet, I'm using the discount rate to find the *01:23:31 point of pricing where my hoarding instinct as a merchant because I want to hoard Bitcoin overwhelms through discounting the hoarding instinct to the buyer until they buy. I want that Bitcoin just as much as they want to keep it, so I keep discounting until they give me their Bitcoin for my product. And at some point, I discount deep enough that they’re willing to give up their Bitcoin and it happens to be either the price of which they were willing to give up their Bitcoin is exactly the price of willing to discount for it because that's the equilibrium point to supply demand, discount stopped. And I did that, it was my business.

The brilliant part of that is if you operate the deflationary business model, you find that there were some interesting extra novelties. For example, California *01:24:21 8.25 per cent sales tax and as a merchant that means I'm costing a lot for my customers. That was a problem, but if I'm discounting, it’s not so bad. But here’s the interesting thing. I collect that 8.25 per cent in Bitcoin at the beginning of the year, and I pay it to California in dollars at the end of the year. I was collection 8.25 per cent when Bitcoin was $7 and I was paying taxes in dollars when Bitcoin was $107. So, that 8 per cent appreciated it by a 1000 per cent, I actually made money collecting sales tax. I also make money on the shipping costs. I make money on every single thing that in a traditional business was overhead because deflationary effect changed the profit equation. Now, I'm not saying that continues for ever. All I'm saying is it’s not as simple as people think. Deflationary environment changes both sides of the equation, not just the buyers.

And so, hoarding becomes an instinct unless you actually want something. If I want eggs and I have Bitcoin, eventually I'm going to buy eggs because I can't eat Bitcoin. And so, hunger will override my hoarding instinct. And then you take that basic idea and you take it out to, well, that's a very huge motorcycle, it comes in red, I really want it. I have some Bitcoin, such a huge motorcycle, I'll buy that motor cycle and yeah, I did it *01:26:10 but I actually financed this in dollar and kept my Bitcoin. Anyway, yeah, so hoarding is a problem, and it's only a problem until you discount to fight it.

There are other problems in Bitcoin. There’s the equilibrium between early adopters and late adopters. There might become a problem overtime. And that’s only a problem if they also hoard *01:26:40 redistribute that coin into the circulation. But again, that is really Bitcoin, the currency and its monetary issuance policy, and the fact that it was four years before anybody notice that it’s actually working versus Bitcoin the network, the technology, the invention, the idea which can apply to a hundred new currencies that might have different monetary policies and may not have a *01:27:04 early adopters, and because now we have a choice. The nice thing is you can move out of Bitcoin just as fast as you moved in. It's harder to move out of a monopoly currency, but once you do, you could switch to many other currency really, really fast. So, we'll see how this plays out.

Male: Thank you.

Andreas: Thank you.

Male: Hi, I'm Peter.

Andreas: Hi, Peter.

Male: My question is regarding your thoughts on how an open currency like Bitcoin could affect politics. So, strictly I want to give you an example of *01:27:39. We've seen some Congressman accept Bitcoins as donations. What if in the next presidential elections, the two candidates starts accepting Bitcoins and outside parties like Russia and Chinese politicians start pushing Bitcoin towards their accounts? Aren’t we in a way almost criminalizing politics?

Andreas: Oh, my God that would be like free voting doesn’t really matter anymore money can just buy politicians. That would be horrible. How is that different from what we have now? It's not really because it's very easy to bypass those things. I think it actually creates some interesting incentives. First of all, it will create an environment where Bitcoin is legitimized and legitimized in the cultural sense, legitimized in the nine people on the Supreme Court said so sense. Citizens united said that money is speech, political speech that can be used for political contributions, and if Bitcoin is used for campaign contributions, good luck banning that. There is a heavy Supreme Court, the President *01:28:56.

So that's actually a good thing. In fact on the huge advantage for using Bitcoin for campaign contributions, and one better, there's only one better religious tithe. And I'm not religious but I think that's also, because if you're a religious institution, you actually have three of the five parts of the First Amendment on your side. So then, if you're doing Bitcoin religious tithing, you have established religion on your side. You have money as a form of free expression, and you have freedom of association. Whatever *01:29:39 no ban, no possible demand at that point, right. So, we’re already seeing churches begin to accept Bitcoin and that's a very interesting game. It’s going to be very difficult to push that out. It's also a great advantage for tithing because it has the built-in dominoes effect, but yes, money and politics is going to be interesting. We're going to have to figure on how to do politics differently.

Male: Thanks.

Male: I am Jeremy from *01:30:13. We’re a grassroots *01:30:16 decentralized *01:30:18 L.A. I like the *01:30:21 real estate you are talking about.

Andreas: Awesome.

Male: So, my question is actually two questions. One of them is about the Bitcoin foundation. So, they have -- they’re responsible for maintaining, updating Bitcoins to some extent and to some people that might sound like centralization. So, I was wondering what people talk about that and how that's *01:30:49. I will imagine that you don't like centralization, so I’d like to *01:30:53. So, when you went to that, my second question *01:30:57.

Andreas: All right, sure. The Bitcoin Foundation does not control the Bitcoin code in any way whatsoever. They pay the salary of Gavin Andresen and he’s one of about 12 developers. And some of the others are paid by our people, and some of them work as volunteers and some of them are not paid by anyone. And they are very independent. Again, if you follow the development band list, you'll see that there’s no centralization of *01:31:26 developers. They *01:31:27 agree on most basic things.

It was plenty and very, very powerful and *01:31:33 on whatever single feature, a code feature and there’s a whole structure of opinions from people who want things to be tightly and nicely regulated and completely radical anarchists who wants to grow past that limitation. And so, there's a very *01:31:50. The other thing to realize is that core developer is not a title. It’s role. So, a core developer is someone who has written code had was accepted into Bitcoin core. That's what it means. That’s all it means.

There is no one going I, Kevin Andresen, by the power vested in me, Bitcoin Foundation anoint you core develop. It’s none of that. It's a completely decentralized organization. No one is in control and the Bitcoin Foundation really pays *01:32:25 one the developers who doesn't even take orders from them, strictly he doesn’t and to operate completely independent. He just has now the time to operate completely independent because someone is paying his salary, but you know, Bitcoi Foundation is not a centralized *01:32:40.

And that doesn’t mean I like what the Bitcoin Foundation is doing. I’m just saying they don't have control of the codes. I don't like the idea of single US-based foundation, made of a board that’s *01:32:56 towards the funding, founding members that has very little responsiveness to the members, very little transparency is really mostly calculated by white dudes, and if not that, it’s calculated by English speaking North American people in a currency that needs to be *01:33:14. So, those are the problems of the foundation, not the way Bitcoin is coded.

Male: Second question is, you're speaking about when the fights begin at part of that was the text classification *01:33:37 here at least. How does that in your mind affect people's desire to do no limits transaction *01:33:46 policies like, you know, text *01:33:50 policies actually if currency *01:33:52?

Andreas: I don't think that was really fact. I think it was more of a -- they had to make it really one way or another and they picked one way and really either way, it would be wrong. Let me explain what I mean by that. If I buy British Pound Sterling in my *01:34:19 account as an investment and then sell it to you later, I pick out *01:34:24 tax because it's an investment. If I fly to London and I buy British Pound Sterling at the airport and I buy a ticket to London Zoo, I won’t pay *01:34:36 no gains tax. It’s predated by the currency.

Same thing to different treatments, depending on how I use it, a use case, I use *01:34:45. The answer, Bitcoin is a currency is wrong. The answer of Bitcoin is a commodity on the capital gains is also wrong. The answer is, Bitcoin is whatever it is when you use it based on how you use it, is the correct answer *01:34:59. And so, we're going need to fix it. Can we innovate around this? Oh, hell, yeah. Well, first of all, *01:35:05 that can do the text reporting, pretty interesting thing.

What happens if you actually report every single purchase on Bitcoin? So, the blockchain is a ledger, right. It’s a public ledger. Let’s say I'm running *01:35:22 micro payments for content, and I'm charging a *01:35:27 for a piece of content, 50 cents. And then I *01:35:33 and then I produce an IRS report and I deliver three file boxes with 7,000 pages of addendum for my capital gains. So, that’s up to $6.75. It’s 7,000 pages. Because that's exactly what's going to happen now.

I mean, if you take it to this natural logical *01:35:59, the companies that need to do that will do that. So, use algorithm to minimize capital gains *01:36:05 of Bitcoins and spending them at the time when they have the least exposure to capital gains tax. And then, I’m going to voluminously report all of that to the IRIS until the IRS can check a single one of these reports because they would take the entire budget of the entire government and just check one of them. And one of your achieve a change in regulation and pretty soon thereafter.

Because it doesn't pay and the whole point is if you look at the IRS, the IRS is really one of the least *01:36:38 organizations in the US government. All it cares about is that you pay for everything, everything you do, laminates that and pay, further pay, *01:36:47 pay, *01:36:51 pay, you know, that's all they do, and they do -- and that doesn't really matter. They don't do political considerations. They do can we tax this? The answer is always yes. Should we tax this? The answer is always yes. And so, what -- if you look at the behavior of the IRS, overtime they try to make it easy for you to give them all your money. This is making it hard for you to give them all your money. So, they're going to change it to make it easier. I'm not worried about that. I don't think this was anything other than a misunderstanding of the scales and the problems that’s going to be created because it doesn't really create that much of a problem. *01:37:36 we can innovate * 01:37:38.

Male: Thanks.

Andreas: Thank you.

Male: All right. We're going to do two more questions, and before we do that I just want to say we're going to clear out these chairs as soon as this is over, and there's some wine and some beer here, and there's networking, so feel free to hang out here and just say helot to your friends. All right, enjoy your * 01:37:56.

Andreas: I'm going to hang out in the evening. Anybody wants to go for drinks, I will happily join them.

Male: All right, so two more questions and then we'll just hang out.

Male: Hey, thank you, Andreas.

Andreas: And Michael, if you could plug in on the digital video thing or not, that'll be great.

Male: Oh.

Andreas: We can?

Male: I don't think we can.

Andreas: No, we’ll talk about it *01:38:17, right.

Male: *01:38:24

Andreas: Okay, in some level *01:38:28 question.

Male: Exactly. It’s impossible *01:38:33

Andreas: I think we’re going see some very interesting developments now in terms of *01:38:39. The key issue here is if you build an Altcoin, you have to then create a momentum behind the chain that Altcoin is based on the blockchain in order to secure it. And if you don't, we've seen what happens Terracoin, Feathercoin, other currencies in the their early stages have been subject to *01:39:00 attack. But contrary to popular perception, you can’t actually do *01:39:07 attack on Bitcoin. It’s almost ridiculous to even contemplate one because of the enormous *01:39:11 power. But you can do it on *01:39:14 Alcoins. So, Altcoins are really susceptible to this.

And the moment that you build an Alcoin, it requires its own chain. You now have to get the level of user adoption where it can be attacked or find a niche proof of work algorithm that will be outside the scope of A6 and most common usages of GPUs and things like that. So, it won’t really be worth any body’s time, but if you get really successful then it is worth their times so they can find *01:39:39. It’s all kinds of complicated considerations.

The other consideration is political. Let me give you an example. Let's say you want to create a coin that implements as its policy the guarantee basic income, like, they do *01:39:54 suggesting in *01:39:55 where very *01:39:56 and instead of issuing them to miners, you issue them to the poorest people in the network, right, a great idea, innovation, interesting, different politics. Someone might want to do that.

Now, you have to find miners who not only would mine this because * 01:40:14 actually agree with that political perspective. So, you're looking for people to adopt the concept in order to acquire a security. If you took that and put it on a Etherium, now you don't need that anymore because now they’re mining *01:40:30 all the Etherium, and they don’t care about what niche political innovation or feature or what niche commercial innovation you're doing, and they don’t need to support that. They're just supporting the Etherium or Bitcoin or something else.

So, there's this basic compromise, do you put it on an existing blockchain, then you lose some control, you make your own. It’s just very similar to what we've seen in technology *01:40:54. We have an initial period of experimentation followed by massive fragmentation, followed by consolidation and standardization and then you have performance optimization that goes to the late stages.

So, for example, I can protocol. When IP was out, it wasn’t the only protocol out there. It was competing with dozens of others and then you have this explosion and suddenly we have hundreds of competing protocols, and then most collapsed and then they consolidated and then they got optimized and now it’s ancient, it’s 25 years old. And so, you're going to see the same thing happen in Bitcoin. *01:41:33 actually allow you to do some interesting things, like HTTP allows to build an *01:41:37 of new protocols and features on top of the existing systems that are really a whole lot of network. You’re going to see things *01:41:45 enables you to do that. There's an older competing proposals in Toronto. Recently, we did an interview with Peter Todd who's suggesting an alternative system called *01:41:55 to understand how that works. That’s coming up on Let’s Talk Bitcoin and that's very interesting too.

Male: Is that also *01:42:05 change?

Andreas: No, it actually allows you to mine multiple. It’s kind of like -- it's difficult to explain *01:42:11 to explain just that question, but it's mining a tree of loss with multiple layers in difficulty and the potential Altcoins in a single mining operation. It's an alternative to *01:42:28 and we're going to see more. It is still early days. All these functions will be worth *01:42:33 lots of really, really smart people, much smarter than me worked on this, so I don't know.

Male: Thank you.

Andreas: Let's take the last question in the evening. Thank you so much, then I’ll tell you *01:42:45 today.

Male: *01:43:04

Andreas: Oh, that's a really good question. So, this is *01:43:15 Bitcoin is reversible and that there’s no recourse for buyers, which is fundamentally wrong. In fact, we now have the ability of *01:43:26 that is far, far better than the existing system. So, let me give you an example. If I buy something from eBay and I use PayPal and it goes bad, I get to use PayPal’s arbitration rules. I don't have a choice. That's why I'm using. PayPal lacked *01:43:42 capability and they will apply their arbitration rules. If I buy something with my Visa card, I'm going to use Visa arbitration rules. If I buy something with my AMEX, I’m using my AMEX’s arbitration rules. Depending on the payments system I used, I will log into it a specific arbitration system and that's how I get recourse.

Now, Bitcoin has this interesting feature. It was used on 1st of November 2014, an external feature that is fully featured in November 2013 called Multi-sec. Multi-sec allows you to create a transaction that in order to execute it requires not one but multiple signatures or sub sets of a signature. So, let's say I'm selling you something, right. Instead of doing a one signature transaction, we're going to do a two or three signature transaction. Two or three means that there are three keys involved mine, yours and a third party, and it takes two signatures to execute the transaction. if all goes well, you and I signed it, done.

If it doesn't go well, if I got a complaint, I go talk to the third party and I use it as arbitrator and I say hey, well, I didn't get my widget, can I -- can you make a transaction *01:44:55 my money back and make a transaction with me. I sign, Paul signs, I get my money back. You go to Paul and you say hey bud, I sent the widget and they’re trying not to pay me. Here’s the tracking number for you yes, here's their signature, you can see *01:45:11 Paul signs, you sign, you get the money.

But here’s the interesting thing. We actually now chose who’s going to be arbitrator instead of being fixed, we now have a *01:45:20. So now, I can disrupt any transaction between two individuals and pay anyone to do the arbitration. I’m doing a real estate transaction, I’m going to pay a specialist in real estate out of the market of thousands of people to do arbitration with different purviews of levels and quality. I made them pay PayPal to act as an intermediary and do long sig with me and my transactions if I want their arbitration rules because it was also last *01:45:48.

Instead of two or three, I can do nine or fifteen. I can do a number of combinations. Some of those signatures can be algorithmic, robotics, isometrics which only sign after a specific date or only signed if the exchange *01:46:01 or only sign if the *01:46:03. And now you could say, I'm going to do a transaction, here's a list of conditions. So, you can actually -- the problem that we have in this decentralized system, is not solved by a centralized institution as before. It’s solved instead by *01:46:24 decentralized solution. The true use of programmable money allows you this, not just officially, but also in a highly predicable deterministic manner that everyone *01:46:37 puts the power back in the individuals, not the network. The network is done. It doesn't decide for you which arbitration you're going to use. You as an individual at the edges of the network add innovation. And so that's what *01:46:50 does.

Male: *01:46:57?

Andreas: Only if you centralized that power, but you know theoretically in the future, we can do a 100 or 300 signatures. You can create a full voting system whereby if all of the buyers from a specific merchants agree that the merchants *01:47:17 the transactions go through, and if they remove their consent to *01:47:20, some of these could be robots, some of this could be based on reviews who knows, some of them could be automated by UPS tracking numbers automatically signing transactions.

Male: If things like --

Andreas: You have choice now. If you trade, *01:47:36 choice to re-implement the old hierarchical centralized institutions, go ahead and you can do that but that's a bad choice.

Male: No, we don't need now an entity to be able to go out *01:47:52 some type of fraud where, you know, let's say some sort of *01:47:56.

Andreas: Sure, you do. You need contractual integrity. Any financial system requires the ability to enforce contracts --

Male: So I have one point--

Andreas: -- when it doesn't have to be a monopoly of a monopolistic system of authority where only one institution can enforce transactions. Now, you have a market based solution where you can pick who enforces the transactions, who are the specific transaction if you want.

Male: I have *01:48:20 at one point it seems like you do need the government to get involved for the police or FBI whoever it may be to *01:48:28?

Andreas: No, you don't because -- you don't because simply the signature will be verified by the blockchain or it will not be verified by the blockchain. This is adjudication by verifiable scripting transaction. And the nice thing about that is that you don't need third parties. You can construct contract materials.

Male: *01:48:48

Andreas: You can create Bitcoins. So, yeah, that's a good conversation. We need to keep having the conversation. One, I'll give a little effort to finish this, which is for every problem in a decentralized solution, there is a centralized simple, obvious solution at it’s wrong. And we should take things *01:49:10 slight more context but infinitely more empowering, scalable, predictable solution. And it's going to be hard to re-build financial services that provided us with a simple wrong answer to services that are empowering and scalable and decentralized. It’s going to take work to do that, decentralized market, decentralized contracts, decentralized decision making. Decentralized everything is the *01:49:41 and it's harder between the simple centralized corruptible wrong answer, but it's a better world.

I got one more thing to talk about very briefly. I want to *01:49:52 a video. I’m going to be announcing this in more detail tomorrow. Yeah, all right. So, one of the things I enjoy doing today was visiting Satoshi Nakamoto. So, I visited Satoshi today. Not the Satoshi Nakamoto who built Bitcoin, no, *01:50:21 Satoshi Nakamoto. The really delightful warm, nice old man, who lives in Los Angeles *01:50:31 Satoshi Nakamoto, who’s struggling to set up his Wi-Fi because he doesn’t understand technology that well. And who quite obviously is not Satoshi Nakamoto, and I deliver the keys to Dorian Nakamoto Fundraiser which started about a month ago, a month-and-a-half ago, and deliver 47-and-a-half Bitcoin to Dorian Nakamoto’s account.

And here's the best news, not only was he absolutely delighted by the response of this community and the incredible generosity of this community, but more importantly he decided to get involved in the community. He’s interested in Bitcoin and he's keeping the Bitcoin and will be using it. And so, I’ve got an old video I made with him which I’m going to be publishing later tonight when I get to the hotel, which is Dorain Nakamoto thanking the Bitcoin community for their incredible generosity. I wanted to show it to you *01:51:32, but that's what I was doing this morning, and it was quite an awesome experience. So, that's all I have. Thank you.

D Nakamoto: Good afternoon, Bitcoin Community. Thank you very much for your support throughout this ordeal that I’m still fighting. And I would like you to see this magazine which came out in April. It will be -- no, actually March 14 issue, this year. The Bitcoin face the mystery man behind the cryptocurrency. And I'm not Satoshi Nakamoto as portrayed as a creator. My name is Dorian Satoshi Nakamoto. And of course, if I was the real creator, I would never use my real name. So, from that point of view, I'm sure you guys would know the Satoshi Nakamoto is not me, but Leah think so, and Newsweek said so, but it's not true.

Okay, I received a Bitcoin account from Andreas and I'm very thankful, for you always people in US, Europe, in Asia and Africa and South America, who supported me throughout. Thank you very much. I want to hug you, that’s 2,000 of you who donated and I'm very happy. Each one gives me attack in my heart. Thank you very much. And I will like to further state that I'll be one of the Bitcoin user, Bitcoin Community person, who would contribute even if it's a little part of this world for good of human kind as Andreas and many out of you endeavour to make the world a little bit better for everybody, especially for poor people. Thank you and I'll keep my Bitcoin account for many, many years and hopefully I can also contribute as you did to me. Thank you.